BurgerFi misled investors in Anthony’s Coal Fired Pizza acquisition, lawsuit claims

Fort Lauderdale-based fast casual restaurant chain BurgerFi misled investors and concealed key information when it projected improved earnings and stock-price growth that would result from its acquisition of Anthony’s Coal Fired Pizza in 2021, a newly filed federal lawsuit claims.

The suit seeks class certification on behalf of all investors who purchased stock in BurgerFi International between Dec. 17, 2020, and Nov. 15, 2022. During that period, value of the company’s stock on NASDAQ has fallen nearly 89% — from $10.44 a share to $1.21 at close of trading on Monday.

The company’s market cap — the value of all commonly traded shares — was $28.83 million, down from $290 million in February 2021.

Meanwhile, the company has reported operating losses in each quarter since the $156.6 million Anthony’s acquisition. Over those five quarters, losses have totaled $220.66 million, according to reports filed with the Securities and Exchange Commission.

The lawsuit was filed on April 6 on behalf of investor John Walker by Coral Springs-based Silver Law Group and New York City-based Pomerantz LLP. The number of potential class members are believed to be in the hundreds or thousands, the suit states. It alleges violations of securities laws and seeks damages, interest and legal fees.

BurgerFi and Anthony’s were each founded in South Florida and remain headquartered here.

BurgerFi — offering a premium, all natural “better burger” — was founded in 2011 in Lauderdale-by-the-Sea and its corporate offices remained in North Palm Beach until 2022, when they were relocated to 200 W. Cypress Creek, Suite 220, in Fort Lauderdale.

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According to its latest annual report, 114 BurgerFi locations are located across 23 states, Puerto Rico and two countries.

Anthony’s Coal Fired Pizza & Wings was founded in Fort Lauderdale in 2002 and has since expanded to 60 locations in eight states. Its concept is built around a 900-degree coal-fired oven that quickly seals in flavors while creating a lightly charred crust.

Defendants named in the suit are BurgerFi International, the publicly traded parent company formed prior to the acquisition, Opes Acquisition Corp., a special purpose acquisition company that uses investor money to take private companies public, and several BurgerFi International executives: Executive Chairman Ophir Sternberg, Chief Executive Officer Ian H. Barnes, former CEO Julio Ramirez, Chief Financial Officer Michael Rabinovitch, and former CFO Bryan McGuire.

A spokeswoman for the company did not immediately respond to emails seeking comment about the lawsuit on Monday.

The suit is based on investigations of public statements filed by the company, including SEC filings, news releases, conference calls, analysts’ reports and advisories and “information readily obtainable on the internet,” it says, adding that the plaintiff expects to find “substantial, additional evidentiary support” for the allegations “after a reasonable opportunity for discovery.”

Securities litigation, also known as stock-drop lawsuits, were made legal following the 1996 passage of a federal law allowing investors to recoup losses if they can prove a company or its employees made fraudulent misstatements or withheld information that would have been material to those buying or selling shares. Stock-drop suits tend to increase during times of crisis, such as the COVID pandemic, and following stock market downturns.

According to an analysis by Los Angeles-based law firm Gibson Dunn, 205 such federal cases were filed in 2022, less than half the number in each of the peak years of 2017 to 2019.

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The suit against BurgerFi states that the plaintiff and other class members would not have purchased the company’s stock, or would have paid “inflated” prices if they had “known the truth.”

The suit claims that the company’s public statements were “materially false and misleading at all times” because it failed to disclose that:

The lawsuit cites numerous statements issued publicly by the company prior to the release on Aug. 11 of its financial report for the second quarter of 2022, which revealed that the company lost $60.4 million compared to a net income of $9 million during the same quarter a year earlier.

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In its Aug. 11 filing, the company attributed the loss primarily to “goodwill impairment charges of $55.2 million in relation to [the chain] coupled with higher depreciation, amortization of intangibles, share-based compensation, [and] interest expense resulting from the acquisition-related debt.”

In November 2022, the company issued its third-quarter earnings report. This one reported a $3.3 million net loss as well as an 11% decrease in same-store sales for BurgerFi’s corporate-owned locations and a 6% decline for franchise-owned restaurants.

Statements cited in the lawsuit included one by Sternberg after BurgerFi was reorganized as a publicly traded company by Opes in December 2020. “We believe that combining Opes with BurgerFi will expand the better burger brand’s growth nationally and internationally to reach new heights and create significant stockholder value,” it said.

Similar projections accompanied release of earnings reports during the first two quarters of 2021, when the company reported net profits, the suit states.

In October 2021, the company announced its acquisition of Anthony’s. The agreement, according to a news release cited in the lawsuit, positioned the company to “continue the growth of our existing BurgerFi brand and leverage our scale to unlock value from strategic acquisitions.”

On April 14, 2022, a news release announcing the company’s 2021 earnings projected a $2 million reduction in expenses, or “cost synergies,” resulting from the Anthony’s acquisition.

On May 16, 2022, an earnings report for the year’s first quarter proclaimed that the company was “on track” to realize the $2 million in cost synergies, and those synergies “are expected to ramp up as we progress through 2022.”

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The statements were “materially false and misleading” because they failed to disclose adverse facts about the business, operations and prospects, the suit states.

The company’s $60.4 million net loss was disclosed in its second quarter earnings report on Aug. 11, 2022. In addition to “goodwill impairment charges” related to the acquisition, the company blamed a 6% increase in expenses dues to higher food, beverage and labor costs but said they were offset by significant savings in other expenses “primarily driven by improved efficiency of the delivery service provider programs.”

The third-quarter earnings report stated that while BurgerFi’s same-store sales decreased, same-store sales at Anthony’s increased by 3% compared to the previous year.

The company’s fourth-quarter earnings report, which was not mentioned in the lawsuit, disclosed a net loss of $26.2 million, an improvement on the 2021 fourth quarter loss of $117.3 million.

The report stated that the company has raised prices and may raise them more “to mitigate the inflationary effects of food and labor costs.” However, it said, “we cannot predict the long-term impact of these negative economic conditions on our restaurant profitability.”

In addition, the company projected it would be able to pay its obligations for at least the next 12 months with revenue from continued operations and its cash-on-hand balance of $11.9 million.

Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071, on Twitter @ronhurtibise or by email at [email protected].